Consumer Group Criticizes Debt Settlement Firms in DOJ Letter
October 31, 2012
Debt relief firms do not achieve the promised results for most customers and often leave them in an even more precarious financial situation, the Center for Responsible Lending wrote in a letter sent to the Justice Department, Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, and Federal Trade Commission. For a fee, the companies offer to settle customer debt for significantly less than the principal; but CRL says they often tell borrowers to cease payments and communication with creditors. "Requiring clients to default on their obligations to third parties, without any assurance of the third parties' cooperation, is debt settlement's central flaw," CRL senior counsel Ellen Harnick wrote. "Debt settlement exploits the desperation of financially strained families, and typically leaves them worse off than they were when they started." In fact, according to CRL, some credit card companies and debt collectors refuse to negotiate with debt settlers; and some even accelerate their collection campaign once the borrower enrolls in debt settlement.
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